Investment Highlights 

• We maintain our HOLD call, forecasts and FV of RM1.09 based on 0.5x its book value, which is consistent with its historical average during the last downcycle in the flat steel sector in 2012-2015.
• The Ministry of International Trade and Industry (MITI) recently formalised anti-dumping duties (from December 2019 to December 2024) of 3.84–26.39% on iron or nonalloy steel-based cold-rolled coils (CRC) with a width of more than 1,300mm from China, Japan, South Korea and Vietnam. This represents an extension to provisional safeguard duties of 26.39% imposed from Aug 2019 to curb the influx of underpriced CRC in the local market.
• We do not believe the latest development could resolve the long-standing issue of dumping by foreign players. They could still possibly bypass the duties by changing the physical properties to an “alloy” (which does not attract anti-dumping duties) by adding an element (for instance, boron) to the CRC without changing the metallurgical properties. We understand that imports have continued to dominate the local CRC market with an estimated market share of 60–70%.
• We remain cautious on the prospects of the local flat steel sector amidst steep competition from cheap imports in the market. While anti-dumping duties have now been put in place by government to protect the local players, they may not completely eliminate the loopholes.
• With cheap imports still flooding the local market, we believe the local flat steel producers, CSC Steel included, will have no choice but to defend their market shares at the expense of margins.

Source: AmInvest Research - 8 Jan 2020